House of Commons Hansard Debates for 14 Jun 1991

Column 1193

national health service because medical science is advancing all the time. The vast increases that have been given in the past 11 years have not been, and never could be, sufficient to keep up. A Labour Minister once said that the needs of the NHS were infinite and that the resources would always be finite. The sooner the Labour party realises that and stops trying to kid the public that Labour would spend more on the NHS, the better it will be for the peace of mind of the people.

Joe Soap public will have to pay higher taxes under a Labour Government when they come to power in 1999 or the year 2000. Labour certainly will not get in next time. Despite the blarney and blandishments of Labour Members, the City now begins to realise that behind the acceptable face of socialism portrayed by the Labour spokesman to whom I have referred, there are those, such as the former chairman of the Labour party, who tell us that we will see the real agenda of the Labour party when Labour is elected, and we know that to be a fact.

In the manner of the hon. Member for Leeds, West, Labour Members attack high salaries. They attack British Telecom for high profits. Why do they always conceal the truth? The Post Office used to run our telephone service. We then had outdated equipment--basically, it was Strowger, the invention of an American undertaker pre-1914. We had to share party lines because there were not enough lines, and we had to wait months for new phones. We as taxpayers had to foot the losses of the Post Office.

I know about that in detail because I was for several years chairman of the postal and telecommunications committee of the CBI and a member of the Post Office Users' National Council until I was sacked by Shirley Williams because I was Conservative. She did not have the guts to tell me herself. She got one of her junior Ministers to tell me.

British Telecom is now private. There are no shared party lines. With its massive digital equipment, one may wait a couple of weeks for a new phone. Calls are now a fifth cheaper than when it was privatised. Shareholders get dividends, the Exchequer gets taxation on those dividends, and it gets corporation tax on BT's profits, instead of having to ask the taxpayer to fund the country's telephone system. That is the story that Labour Members never dare tell us. That is why they know in the end that the public will not fall for their nonsense of renationalising--by 2 per cent. more, or whatever the figure may be--of BT.

Ms. Abbott : On a point of order, Madam Deputy Speaker. Is it in order for the hon. Gentleman to talk about British Telecom without mentioning the astronomic rise in directory inquiry call charges?

Madam Deputy Speaker (Miss Betty Boothroyd) : That is barely a point of order for the Chair. All hon. Members are responsible for the speeches that they make in the House.

Sir Geoffrey Finsberg : The hon. Lady, in raising that bogus point of order, should have reminded us that costs to the general public have come down by 6 per cent. as a consequence of charging for directory inquiry calls, so that only those who use that service pay, instead of all of us

Column 1194

paying. Let us have no more of that sort of intervention, although it was helpful, which the hon. Lady did not intend it to be. The capital programmes today of BT and all our nationalised industries, now privatised, can go ahead without the Treasury trying to treble guess everybody. That was the trouble in the past, though not under Conservative rule. In the past, when those industries were nationalised--as we heard in a brilliant speech last week from my right hon. Friend the Member for Chingford (Mr. Tebbit)--an industry worked out what it wanted, went to the sponsoring Ministry, which reworked it, and it then went to the Treasury, which re-reworked it. The Treasury then replied, "Of course you would like three digital exchanges, but we have a bridge to build and we regard that as more important." Now, when any of the privatised industries wants to carry out a capital project, it does so without recourse to taxation and the Treasury, which is a saner way of managing things.

All that would disappear were a Labour Government to be elected again. We have seen and heard about the open agenda and the hidden agenda. I prefer to believe, from experience, that the hidden agenda would operate.

There is one basic difference between the Tory party and the other parties : we believe that it is better to let people's money fructify in their own pockets. We do not believe that we know better how to spend other people's money. The choice is simple : high taxation under the socialists and Liberal Democrats, or low taxation under the Tories.

12.39 pm

Mr. Gordon McMaster (Paisley, South) : I am grateful for the opportunity to participate in the debate. I was delighted to be third in the ballot for private Member's motions, but I was beginning to suspect that we might not get that far today. Therefore, I welcome the opportunity to participate in the debate on taxation. We have heard much rhetoric about the effect of the Government's policies on taxation over the past decade, but I shall concentrate on the real effects, as I know them from my constituency and elsewhere, on real people. Many hon. Members did not try to hide the fact that during the past 10 years the Government have made the rich richer and the poor poorer. Every report and all the statistical evidence shows that to be the case.

We have heard some carefully reasoned arguments today, but we know that some adherents of the Conservative cause argue openly elsewhere that they want to apply the law of the jungle in what should be a sophisticated civilisation so that the strong should be rewarded and the weak left to founder. No one would dispute the wisdom of encouraging the strong to prosper, but to do that at the expense of the weak and of people who cannot therefore contribute to the economy is not good. I have always believed that we should judge a civilisation not by how great its national assets are, but by how it treats the weakest in society. Judged by that criterion over the past decade, the Government do not fare at all well.

Specific groups have been mentioned today. The hon. and learned Member for Perth and Kinross (Sir N. Fairbairn) referred to someone who is unemployed and able to receive legal aid, whereas a district nurse was unable to do so. I do not dispute that, but that criterion

Column 1195

--or hidden tax--could also be said to apply to other groups. Let us consider, for example, the senior citizens who have worked all their lives and contributed to their works pension funds, but now discover that any income that they receive from that source is deducted pound for a pound so that they are not entitled to a reduction in community charge or to housing benefit. They are, in many cases, no better off for having contributed to their works pension schemes, which is clearly wrong.

I had intended to refer in my private Member's motion to the fact that the case for the disabled is equally strong, but I shall leave that for the moment except to issue a word of caution to the Government. The disabled community of Great Britain comprises about 6.5 million people, in addition to their families and those who care for them. It would be folly for anyone to ignore their wishes or those of all the voluntary and lobby groups that support the disabled. I ask the Minister to spell out how the cuts in direct taxation have helped such people in the past decade, as the groups involved say that they do not understand it. Disabled people have had their benefits changed and are now worse off. They now pay a higher proportion of their earnings in value added tax and find it increasingly difficult to find a place in the job market.

Mr. Bill Walker : The hon. Gentleman is not alone in being concerned for the well-being of the disabled. I hope that he is not suggesting that because someone is disabled he or she cannot do a job. Many disabled people do jobs and earn substantial incomes, and I include myself in that category.

Mr. McMaster : I certainly accept that we do not have a monopoly of concern for the disabled. That is not in dispute. My point is that if the Government continue to pursue their policies on the disabled, the partnership and consensus will be in jeopardy.

I have personal knowledge of the work that disabled people can do and the role that they can play in the community. For 10 years I taught horticulture in a Glasgow college. For the last two of those years I was seconded to a project to help disabled people into employment. During that period I learnt the salutary lesson that disabled people can make a contribution. Is a person who is wheelchair-bound any less able to do a secretarial job? Is someone with a learning difficulty any less able to do many jobs? There is a good example in this Chamber : is someone with a hearing impairment any less able to do this job? There are many such good examples. I am aware that I am straying wide of the debate and I shall return to it. The purpose of taxation is to provide services at the point of need. Those in need include groups in the community with particular disadvantages. Much has been made of the Government's targeting of income tax and the philosophy that lies behind it. In 1985 when my hon. Friend the Member for Monklands, West (Mr. Clarke) was promoting the Disabled Persons (Services, Consultation and Representation) Act 1986 he said at a press conference :

"The principal purpose is to ensure greater representation of disabled people in decisions which affect their own lives. Disabled people should not be continually done unto."

This morning Tory Members have applied that argument to all people. They have said that they want to give everybody more control of their lives, more say and more freedom, and that the Government should not do unto them. There is consensus on that point when it is applied

Column 1196

to disabled people and an opportunity for partnership, but only if the Government apply to them the policies to which the Government say they are committed.

An important aspect of taxation relates to the 1986 Act. For six years the disabled community and all the organisations that serve it have believed that the Act would be implemented. Government agencies, voluntary agencies and local authorities have already spent considerable sums of taxpayers' money training staff to cope with it, only to find now that the Act will not be implemented. That is a serious waste of taxpayers' money.

Ms. Abbott : Does my hon. Friend agree that cuts in direct taxation do absolutely nothing for those on benefit and those who depend on state social security? Those people have suffered during the past 12 years. Does he further agree that the unpleasant gloating of the hon. Member for Hampstead and Highgate (Sir G. Finsberg) over the Government's success in allowing rich people's money to fructify in their pockets, Swiss bank accounts and offshore trusts, and his complete lack of concern for people on benefit, pensioners, the low paid, women dependent on social security and those who have suffered under the Government, will ensure that he is replaced in short order by Miss Glenda Jackson, the Labour party candidate in his constituency?

Mr. McMaster : I certainly agree. The old adage has come to life : to make the rich work harder, pay them more ; to make the poor work harder, pay them less. That is the Conservative philosophy and it completely misses out disabled people who do not even have the opportunity to work and pay taxes.

The Government's failure to implement the 1986 Act has another effect on disabled people. The Act provided for assessment of needs. If the Government intend, as they say they do, to target their resources where they are required, how can they proceed without an assessment of needs? Globally speaking, no new legislation has superseded the 1986 Act--the only new element has been the right of appeal.

Last night I had the good fortune to be in the company of and to hear a speech by the only Member in the House who is as wise as and even more distinguished than you, Madam Deputy Speaker. I refer to Mr. Speaker himself, who said :

"Parliament should not only deal with issues affecting all the people. It should deal with issues which affect any of the people." The disabled are being discriminated against still and the Government have the legislation in place to do something about that--if only they will implement the 1986 Act.

A few weeks ago I tabled a parliamentary question to the Secretary of State for Scotland asking how many manufacturing jobs had been lost in the area with a Paisley postcode. The answer was that 76 per cent. of such jobs in that area had been lost. There used to be 19, 100 ; now there are 4,500. So 14,600 people, three quarters of those who worked in manufacturing industry, have lost their jobs. That is the real effect of the Government's taxation and economic policies.

Mr. Bill Walker : Will the hon. Gentleman reflect on the fact that this week Babcock, a name which he will recognise, is celebrating 100 years of successful business in Scotland? Will he further reflect that in the past few years Babcock's work force has fallen from more than 6,000 to

Column 1197

between 1,500 and 2,000--yet productivity is higher than before? Now the company has sure jobs in a difficult and competitive international market and it is no longer vulnerable, as it was when too many people worked for it. I was told all this by the chief executive of the company--does the hon. Gentleman dispute it?

Mr. McMaster : Babcock is actually in the constituency of my hon. Friend the Member for Paisley, North (Mrs. Adams), but the last time I visited it to talk to the management--it was during the Gulf crisis--I learnt that when the company had to freeze its contracts the Government would not give it a bridging loan. So there is everything to be proud of when productivity is improved but nothing to be proud of if, when it has been improved, the opportunity to expand is not taken up. Babcock is capable of doing many other things and of entering many other markets. It is an excellent company, but when it was in difficulty it did not receive Government support.

Less than half a mile from Babcock used to be a company called Howden's. It was a world leader in renewable energy--a fashionable idea--and at the forefront of environmentally friendly renewable energy products. While still in profit, the company closed down due to a combination of factors, not least among which were high interest rates and the associated economic problems of this country. Rolls-Royce is another example. It has just made redundant 6,000 workers, some of whom worked in the Hillington engine factory. Rolls-Royce announced today that it is to open a factory in Germany. How can it be called economic success when workers are losing their jobs? They are not getting a chance to improve productivity because their jobs are going to other countries. There must be lessons to be learned from that.

Ms. Abbott : My hon. Friend ably describes the shrinking of our manufacturing base. Does he agree that the tentacles of the recession reaching into the south-east and affecting white collar jobs in the service industries that were set up in the latter half of the 1980s will ensure that the Government are swept away at the next general election?

Mr. McMaster : I agree. I knew that incomes in the south-east were higher than in Scotland, but I am a new Member and in the six months that I have been here I have seen many poorly clad children in London. That is because all family income is used to fund high-interest mortgages.

The motion refers to the "initiative and enterprise" which Government taxation policies have created. I am disappointed that the hon. and learned Member for Perth and Kinross (Sir N. Fairbairn) is not in his place, because he takes a great interest in and is an expert on the fashion industry. I was one of the four Labour Members present when the hon. Member for Torridge and Devon, West (Miss Nicholson) and my hon. Friend the Member for Linlithgow (Mr. Dalyell) spoke about alleged Folletting in the Labour party. We did not look as if we had been Folletted. In the spirit of the initiative and enterprise mentioned in the motion, I suggest that some Conservative Members should be "Fairbairned". That would certainly bring some colour to the House.

Ten years ago Paisley was famous for its thread mills, but they have all closed as a result of the Government's economic policies. The paisley pattern is world renowned.

Column 1198

I am wearing a paisley-patterned tie, as are some other hon. Members. Not a single stitch of the paisley pattern is now sewn in Paisley. For many months the local authority and I and my hon. Friend the Member for Paisley, North and others have been trying to persuade industry to manufacture paisley-patterned goods in Paisley. That is bound to be an economic success, but we have not found the enterprise and initiative that are necessary to bring it about.

Conservative Members have spoken about high indirect taxation. The rich can only spend so much of a tax cut. It would make far more sense to give the majority of consumers more money, and that can be done only through a measure of wealth distribution. The Labour party has plainly said that it will not promise anything or do anything that it cannot afford. We have also said that people such as pensioners and the disabled, who have suffered over the past decade, must be given more spending power.

Wealth must be created before taxes can be paid. Employed people make a great contribution through pay-as-you-earn, so it makes sense to get more people back to work. In that regard the Government have singularly failed. Worse than that, they have pursued policies that have put people out of work.

The Chancellor of the Exchequer said--I am sure that many Conservative Members are fed up hearing my colleagues quote the right hon. Gentleman's statement, but we shall continue to do so--that unemployment was a price well worth paying. I can assure Conservative Members that the electorate in my constituency and other electorates elsewhere think that unemployment is a price which the country cannot afford to pay. It is an issue which will guide the electorate generally when it comes to place its cross on the ballot paper at the general election.

Among the many who have been disfranchised from employment are the disabled. That has had many effects, including economic effects. If disabled people do not work, they cannot contribute to the income tax system. That means that they do not have a chance to contribute to the economy, and there is a dignity to be gained from making that contribution. There is also an economic benefit in getting people back to work.

Self-esteem is much enhanced if someone feels that he is contributing to society. That leads to improvements within the community generally and to many social benefits. It would do us all well to remember that none of us can say any more than that he or she is temporarily able-bodied. Some people are born disabled and others become disabled. We do not know what lies before us, so concern for the disabled is something which we should all share.

Having worked on a project with disabled people, I believe that there is a tremendous pool of untapped talent among the disabled community. It was made evident in the film "The Rain Man" that if someone has a disability there tends to be a compensatory ability. That is why we should always emphasise ability rather than disability.

When disabled people who want to work are kept out of work, their disabilities are emphasised and their abilities become diminished. That leads to personal and social problems as well as economic problems. As I have said, it is important that disabled people should be able to contribute to the community.

There is much employment discrimination. For many years there has been a legislative requirement that

Column 1199

employers should meet the 3 per cent. quota and ensure that 3 per cent. of the work force comprises the disabled. We all know that that requirement has not been enforced and that it has become almost a voluntary objective. I served as the leader of a council and I know that the Department of Employment gave awards to employers who ensured that 1 per cent. of their work force were disabled people. In other words, they were given awards for breaking the law by two thirds.

The Government's record is not honourable. I tabled a question to the Secretary of State for Scotland a few weeks ago asking him to state the extent to which the Scottish health service had succeeded in meeting the target quota. I selected the Scottish health service because I thought that a public spending body would have some sympathy for and empathy with those with disabilities. I discovered that over a 10-year period the employment of disabled people as a percentage of the work force had declined from 0.5 per cent. to 0.2 per cent. It seems that the shortfall is becoming worse.

I was fortunate last night to receive a reply to a question from the Member for Berwick-upon-Tweed (Mr. Beith), in his capacity as a representative of the House of Commons Commission. I am sorry to inform the House that, far from our meeting the quota, only 0.6 per cent. of those employed in this place are disabled. The place that enacted the legislation has not implemented it. Indeed, it is more than two thirds short of the quota.

There is a great deal to do if we are to get disabled people back into the community and ensure that they are given a full place in it. Another problem--it is one that many employers would identify--is getting those who are registered disabled to take employment. From my experience as a councillor and in my place of work before I became a Member, I know that it can be difficult to get the registered to take up employment. That is because they do not want to carry that label with them. I am conscious that I am straying from the point, Madam Deputy Speaker, but the simple answer would be to amend the legislation so that anyone who is registered or eligible to be registered as disabled comes under the remit of the Disabled Persons (Service, Consultation and Representation) Act 1986. That is what we could do.

To return to the subject of taxation which I should be discussing, the question is : how can we get the weakest in our community back into employment? I suggest in my motion that if employers deliberately--rather than accidentally--fail to achieve the quota, we should consider penalising them for not doing so. The money then raised should be paid into an equalisation fund which could be distributed for aids to access, rehabilitation and support for disabled people.

We have heard an important principle advanced by Conservative Members today. They suggest that only those who use British Telecom's directory inquiry service should pay the charges. That principle could be adopted to ensure that only bad employers were forced to pay. In fact, there could be tax incentives for good ones. The first report of the Select Committee on Employment in 1990-91 supported such a measure and the tightening of the quota system. That Committee, of course, has a Conservative majority.

The Government's tax policy has penalised many people, especially the most vulnerable in the community. I reiterate my earlier point that Conservative Members seem to be arguing that to make the rich work harder, one has

Column 1200

to pay them more, but that to make the poor work harder one pays them less. Everything that Conservative Members have said today convinces me that that is their view.

It should be emphasised that the Labour party has stated that it would have lower taxes for those on the lowest earnings--they would be even lower than now. There should also be tax incentives for good employers, especially those who invest in training and in becoming a good employer. We would, therefore, increase wealth by increasing tax income through getting people back to work.

1.7 pm

The Economic Secretary to the Treasury (Mr. John Maples) : The hon. Member for Paisley, South (Mr. McMaster) has made an eloquent plea on behalf of the disabled. He obviously has a serious and deep knowledge of the subject, and I am glad that he was at least able to make the opening speech of the debate that he had hoped would follow this one by topping and tailing his speech with a little bit about the Labour party's tax policy. Concern for the disabled is widely shared in the House. He will find that the Government's record on increasing spending on the disabled is pretty good.

I congratulate my hon. Friend the Member for Kensington (Mr. Fishburn) on picking the subject of taxation policy for the debate. His motion gives us an opportunity to examine the stark difference between the Conservative Government's policy on taxation and that of the Opposition. It will enable us to strip away the fig leaves of respectability with which the Labour party has sought to conceal its plans for vastly increased public spending, leading to vastly increased taxes.

In the speech of the hon. Member for Leeds, West (Mr. Battle) we heard the authentic voice of socialism--a hatred and envy of personal success that motivates many Labour Back Benchers, if not those on the Front Bench who are hungry for office. Those plans and the envy mean that the Labour party has a secret agenda of tax increases, not just for the so-called rich but for all taxpayers. As my hon. Friend the Member for Hampstead and Highgate (Sir G. Finsberg) reminded us, the Labour party's definition of the so- called super-rich will have to include nurses, police inspectors and teachers or there will not be any money to pay for its spending pledges.

To the contrary, the Government seek to distribute the growth of the economy in a balanced way, part of it going in increases in spending on the priority public service and part of it going to reduce the tax burden.

The Labour party, as always, seeks to increase public sector spending, while giving none of the benefits of growth to the taxpayer. What is more, with its hostility to all the measures that we have taken to improve efficiency in the public sector, there is absolutely no assurance that increased public spending would do anything but raise wages and employment in the public sector. That is unlikely to improve the service. It is right to debate these issues properly as they represent a significant difference between the Conservative and Labour parties. Some Opposition speeches have borne that out.

My hon. Friend the Member for Kensington drew on the comparative history of what has happened when Labour and Conservative Governments have been in office.

Column 1201

The hon. and learned Member for Montgomery (Mr. Carlile) called for a review of charity law. Many people believe that there are problems with that body of law. However, I am sure that he will accept it when I say that that is not one of my responsibilities. I know that his concerns and those of others are widely known, and I am sure that they have been heard.

The hon. and learned Gentleman suggested that we should have a system of self-assessment for tax. Most taxpayers in the United Kingdom are on PAYE-- pay as you earn--and do not have to make any tax return. I am not sure whether there is an advantage in putting those people on self-assessment. The Treasury is publishing shortly a consultation document on schedule D taxpayers, the self-employed. I do not know what that document will say, but in the context of the debate on that subject it is appropriate to discuss it now. I am sorry that my hon. Friend the Member for Wanstead and Woodford (Mr. Arbuthnot) has not been to the Skinner school on the rules of order ; otherwise he would have been able to slip in the fact that the inflation rate for May has fallen. Unfortunately, my hon. Friend was stopped from doing so. The inflation rate has fallen to 5.8 per cent. and that shows that the Government are on course for our target of 4 per cent. by the end of the year.

Mr. Nicholas Brown : Can the hon. Gentleman tell the House what is the underlying rate?

Mr. Maples : The underlying rate fell from 6.8 per cent. to 6.6 per cent. That shows that the headline rate of inflation, which the hon. Gentleman--

Mr. Brown rose--

Mr. Maples : I will not give way as I have already answered the hon. Gentleman. The hon. Gentleman used to say that most attention should be paid to the headline rate of inflation. Is he suggesting that we should use an inaccurate definition of the underlying rate of inflation that leaves the VAT increase in but takes the community charge decrease out? He knows as well as I that that is an extremely misleading definition of the underlying rate of inflation. That is pure mischief making by those who use that old definition. At the heart of the debate lies the question of which policies are more likely to produce faster and sustainable growth. Only growth can provide the resources for increased spending on priority services and only growth can provide higher take-home pay. If growth is low, more public spending means heavier taxation. If growth is fast, the resources are there to increase spending where needed, to reduce the tax rates and to increase take-home pay.

The growth dividend that we achieved in the 1980s enabled us to increase public spending in real terms by 7 per cent. while reducing it as a proportion of the gross domestic product from more than 47 per cent. to just over 40 per cent. That growth also enabled us to slash the public sector borrowing requirement from 5 per cent. of GDP when we took office. I should remind the House that it was more than 9 per cent. in 1975-76, which is the equivalent now of £60 billion. We have had a substantial surplus in two of the past three financial years and a small surplus in the most recent financial year.

Column 1202

The growth dividend has also enabled the real take-home pay of a married man on average earnings with two children to rise by no less than 37 per cent.--about £70 a week. That is a measure of what the growth dividend has achieved and the way in which it has been possible to divide it. If we had sought to spend the entire dividend in the public sector, and had raised taxes to do so, we would never have achieved the growth that has enabled us to achieve those three objectives.

Despite the huge reduction in Government borrowing, the tax burden on all multiples of average earnings is lower today than it would have been had we done no more than index the tax regime that we inherited in 1978-79.

Between 1974 and 1979, when the Labour party was in office, it became clear that if one was soft on spending, the state sector would grow as a proportion of GDP. That is inevitable, as is the fact that the tax burden rises. If that happens, average tax rates and marginal tax rates will rise. That is what happened under Labour. The Conservative Government understand that and we have limited the growth of the public sector to what the taxpayer can afford. That has enabled public spending to grow at the same rate at which the economy has grown--in fact, slightly faster--without increasing the tax burden. Without a benchmark, public spending would soon be out of control. Labour would not only be without such a benchmark--we have set a target of around 40 per cent.--but has a whole raft of spending commitments that would obliterate in weeks any target that it set. That is what happened before. We remember what occurred when the right hon. Member for Leeds, East (Mr. Healey) was Chancellor of the Exchequer and public expenditure ran out of control.

Borrowing consistently on a large scale does not solve the problem either. In 1979, the Government were borrowing 5.5 per cent. of gross domestic product--down from nearly 10 per cent. a few years earlier. At today's prices, 5.5 per cent. is £30,000 million--taxes that were not raised at the time, but have to be paid for with interest now. If one had accumulated 5.5 per cent. a year of GDP since 1979, it would have added nearly £200 billion to public debt. That would have required nearly £20 billion per year in interest to service, which alone would be the equivalent of 10p on income tax or a substantial cut in a sector of public expenditure. Borrowing is not an alternative to tax. It simply defers the cost, making the next generation pay for the excesses of the current generation. Even if we assume that Labour, on taking office, ran a 2.5 per cent. public sector borrowing requirement, at the end of five years it would have added £72 billion to public sector debt, involving more than £7 billion of debt servicing, or 4p on income tax, or an equivalent cut in public expenditure.

The last Labour Government tested the limits of what could be levied in taxation. In 1979, the basic rate of income tax was 33p, having been 35p before the election. The top rate was 83p, and there was an extra 15p on investment income. There were six higher rate tax bands. Corporation tax was 52 per cent.

It was not only the rich who were howling at those tax rates. As the then Prime Minister, now Lord Callaghan, said in 1978 : "If you talk to people in the factories and in the clubs, they all want to pay less tax."

Column 1203

They still do. It is no wonder that such high rates of tax were a disincentive. Between 1975 and 1979, some of the country's most valuable managers and qualified staff emigrated, with the brain drain taking 68,000 well-qualified people away from Britain.

Tax reform is only one aspect--albeit a vital one--of the Government's commitment to an irreversible improvement in the supply side. We demonstrated that commitment almost as soon as we came to office by demolishing the edifice of control that had incarcerated British firms for so long. Pay, price, and dividend controls were abolished. Hire purchase controls went. Foreign exchange controls were dismantled. Those steps had a decisive influence on the behaviour of companies, which no longer had to compete with one hand tied behind their back.

Equally important were our measures to make the labour market work better. Changes in trade union legislation introduced more democratic procedures and made unions more accountable under the law. The result was that last year the number of stoppages due to industrial disputes was the lowest since 1935. Firms across the world now see the United Kingdom as a prime site for industrial investment. In 1988 and 1989, the United Kingdom took almost two fifths of all inward investment into the EEC.

Two vital ingredients are supply side policy and lower marginal tax rates, and competition. Labour does not appear to believe in either. Over the past week or so the Financial Times has examined various aspects of Labour party policy and how it appears to have improved. They were summed up in a leader entitled "Labour as government". In the context of lower tax rates and competition, that article made two points that I could not put better myself :

"Labour's proposed multi-band income tax is unnecessarily unwieldy and the implicit top rate--59 per cent.--too high and the intention to sustain substantial public borrowing is worrying.

Nevertheless, the most serious doubts lie elsewhere. Labour may try to talk about the market, but it is a foreign language. Whenever it tries to utter a complex thought, Labour returns instinctively to its dirigiste native tongue. From Vancouver to Vladivostock, the importance of competition and individual choice were the most appealing themes of the 1980s. Most people find the ability to make choices for themselves more attractive than the right to a tiny voice in collective decisions. Furthermore, the resulting competition provides a spur to improved performance and disciplines the arrogance of organised producers."

That article adds that the "hole in the heart" of Labour policy is "the resistance to competition and individual choice, a resistance demonstrated as much in its plans for education and health as in its plans for BT."

Those are two essential ingredients on the supply side. They were essential for the growth of the economy that was achieved in the 1980s.

Public spending, which peaked at nearly 50 per cent. of national income, was simply too high for the taxpayer to sustain. It is no surprise that during the 1970s the United Kingdom was at the bottom of the league table of economic growth. In the 1980s, it was near the top of the European growth league. Indeed, the United Kingdom was the only member of the G7 to have a better average growth rate in the 1980s than in the 1970s.

Under the Government, non-oil gross domestic product has grown by an average of 1.9 per cent. a year--that is, after taking account of the downturn in the

Column 1204

second half of 1990. Under the previous Labour Government, non-oil GDP grew by only 1.2 per cent. What is more, growth in the 1980s was much more broadly spread than in the previous decade. Investment grew faster than consumption, and that did not happen between 1974 and 1979. During that period, annual capital formation grew by 0.3 per cent.--yes, 0.3 per cent.--a year. The non-oil economy grew at an average of only 1.2 per cent. Inflation averaged 15 per cent. We should remember that in the context of today's announcement. Unsurprisingly, we were bottom of most international growth leagues. After we sorted out the mess that we had inherited, the British economy grew strongly. Between 1981 and 1990 it grew at over 3 per cent. a year. In the 1980s, the United Kingdom economy grew faster than those of Germany and France. In fact, our performance was better than that of all major European Community countries except Spain. We also did better than West Germany or France on investment growth and manufacturing productivity.

There are many reasons for that better performance. A vital ingredient has been the Government's approach to taxation and the lower marginal rates now imposed. We made our approach clear in our 1979 manifesto. We felt that direct taxes were too high and that marginal rates were far too high. As my hon. Friend the Member for Kensington said, there has been a switch from direct to indirect taxation. That enables people to make their own decisions about spending, and thus about the level of tax, at least at the margin, imposed on them.

Since 1981 we have corrected the previous Labour Government's borrowing binge. The overall tax burden has been reduced from 40 per cent. to just under 38 per cent., and is forecast to fall to 37 per cent. in 1991-92. Marginal rates of tax have also decreased substantially. The basic rate of income tax is down from 33p to 25p--lower than at any time since the 1930s. Personal allowances have risen by over 27 per cent. more than prices, taking almost 2 million people out of the tax system. Nine higher rates of income tax have been reduced to a single higher rate of 40 per cent. Corporation tax at 33 per cent. is one of the lowest in the industrial world. In addition, six major taxes have been abolished--national insurance surcharge, investment income surcharge, capital duty, capital transfer tax, development land tax and the composite rate of tax on savings. Next year, stamp duty on share transfers will also be abolished.

We have introduced the independent taxation of husband and wife under which 3 million people will pay less tax, including 1 million elderly couples.

I believe that it is no coincidence that growth in the 1980s was faster than in the 1970s, with lower marginal rates of tax for everyone. The high- rate taxpayers have been paying a greater share of the total. In 1976 the top 10 per cent. of earners paid 35 per cent. of total income tax ; last year they paid 42 per cent. The bottom 50 per cent. of taxpayers have seen their share of the income tax bill fall from 20 to 15 per cent. Between 1983 and 1989, a net 30,000 professional and managerial people came back into the United Kingdom from abroad.

It is a fallacy to say that high rates of tax create high revenue ; they do not. They create jobs for tax avoidance specialists, which was, I confess, one of the only growth areas of the economy between 1974 and 1979.

The hon. Member for Newcastle upon Tyne, East (Mr. Brown) will no doubt point out that the overall burden of tax increased slightly by about 1 per cent. in the 1980s.

Column 1205

However, he will not tell us that there was a public sector borrowing requirement of 5 per cent. of GDP in 1978-79 which no longer exists. If the total tax burden and the PSBR--which is simply deferred tax and imposes burdens on later generations--for 1975-76 are added together, the total burden was 46 per cent. In 1978-79, the Labour Government had managed to reduce it to about 40 per cent. Next year it is forecast to be 38 per cent. That is a substantial reduction in the Government's imposition on this and future generations of taxpayers. In addition to doing that, we have succeeded in repaying £30 billion of the national debt, which now stands at 28 per cent. of GDP compared with a terrifying 51 per cent. when we came into office in 1979.

To get some idea of what the Labour party's tax policies might be like if it were in government, it is worth looking back to what they were like when they were in government in the 1970s. If we had taken the tax regime that we inherited in 1978-79 and simply indexed it for inflation, taxpayers would be paying an extra £28 billion in tax this year--more than £1,000 per taxpayer, or £20 a week and tax would be running at 42 per cent. of GDP. That would represent someone on average earnings paying 36 per cent. of his income in tax compared with 33 per cent. now.

It is astonishing that we should be attacked for the slight increase in taxes as a percentage of GDP--not taking account of the PSBR. First, it pretends that the PSBR does not exist and that it is not simply deferred taxation. Secondly, it seems that Labour's answer to what it calls the too- high tax burden is to raise it even further.

Mr. Paice : My hon. Friend referred to a clear mathematical calculation of the extra taxes that would be paid now if the Labour party's 1979 taxes had been carried through. Does he agree that that would never have happened? Those penal levels of taxation would have continued to deter effort and invention, resulting in many more wealthy people taking their money abroad. The net effect would have been a reduction in the tax take, rather than the increase which mathematically one would assume.

Mr. Maples : My hon. Friend is obviously right. One would not raise tax at 98 per cent. rates, because it is not worth working for that. More and more of my friends were finding that this was an impossible place in which to live and work and that it was pointless to put any effort into doing so.

Mr. Dalyell : Last Tuesday, with my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore), I attended a seminar at University College London in the Institute of Contemporary History. It was on the Labour Government between 1964 and 1970 and took place in the presence of Sir Alexander Cairncross, who was chief economist, and others.

One of the features of that Government is that there were never more than 700,000 unemployed people. Recently there have been a couple of million or more. It is all very well the hon. Gentleman saying how difficult he found it to work, but under a Labour Government many other people were only too thankful to be in a job.

Next Section

Home Page